March 26, 2009 - 3:16PM
Gold prices were little changed on Thursday as the US dollar recovered, with investors keeping their eyes peeled for signs of risk appetite as Asian shares hit their highest level in 11 weeks.
Gold got a boost on Wednesday after US Treasury Secretary Timothy Geithner suggested he was open to expanding the use of an IMF currency basket, stoking doubts over the dollar as the world's reserve currency.
The US dollar recovered against the yen on Thursday, after Geithner's comments had pushed the US dollar lower against the Japanese currency and the euro the day before.
Geithner later said the dollar would keep its status as the top reserve currency for a long time.
Gold was at $US932.05 per ounce in Asian trade, down 0.1% from New York's notional close of $US933.15 on Wednesday.
Bullion has recovered nearly 6% from a six-week low of $US882.90 hit on March 18, but is still 7% off the 11-month high above $US1000 set in February, and well under an all-time peak of $US1030.80 hit in March 2008.
"I do have to note the developments in the dollar will also play a crucial role in gold's direction as recent talk has been on quantitative easing, the dollar as a reserve currency, etc,'' said Adrian Koh, an analyst at Phillip Futures.
"The longer-term effects of quantitative easing and a dispersion of the dollar as a reserve currency will probably be negative for the dollar, and if the normal correlation of a negative correlation between gold and the dollar holds, then gold should be supported in the long term,'' he said.
Gold is often viewed as an alternative to holding the dollar, rising when the greenback falls. A weaker dollar also makes gold less expensive for holders of other currencies.
The stock rally has dampened demand for gold over the past couple of sessions, as investors saw risk appetite starting to kick in again. But traders and analysts remain sceptical of whether a big rally would be sustainable.
"The question is how long this stock market rally will go. And since many people still think that everything is not fine yet ... Any turn back towards bad news and data will bring the safe-haven plays back,'' Koh said.
The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings remained at 1124.99 tonnes on March 25, unchanged from the record hit the previous day.